A comprehensive recovery plan is needed to fix the VI's problems. The piecemeal approach, which has been taken to date, will not be accepted. We all have to share in the burden and we have to see the whole package. Floating one aspect at a time is a certain recipe for failure as each piece alone cannot withstand public criticism.
An Answer: A VI Economic Recovery Action Plan
Goal: To eliminate the operating deficit and accumulated deficit of the VI Government by reducing government spending by 15% and holding at such levels and by growing revenues by 10% annually.
Goal: To enhance the Virgin Islands for Virgin Islanders such that others will want to visit. (Meet the needs of the local population and everything else will fall in place i.e. create parks for locals and tourist too will enjoy them.)
Assumptions:
a. "Profit" and the "Private Sector" are not bad words. Virgin Islanders should be actively encouraged to get into business as a first alternative, not a second alternative when they cannot get a government job. The private sector is the key to economic growth, not the public sectors and Virgin Islanders have to participate in its success.
b. The government of the VI is too large.
c. We live on islands; our solutions need to be tailored to our unique characteristics and we have to acknowledge there are limitations and advantages given our geological make-up
d. We cannot absorb all the graduates in the private sector and the government. We therefore have to prepare our youth for a life in the world outside their neighborhoods.
e. The poor quality of our education system is the root cause of our problems. Creating a viable education system has to be priority number one and it is not a function of money; it is a function of management.
f. We are in a global society, our competitors are not next door but around the world. What happens around the world affects us directly and/or indirectly.
g. We have to live with less from government.
h. We have an expense problem not a revenue problem.
i. There is no one fix, but a lengthy list of adjustments in the way we operate.
Strategy:
Tourism is the engine of these islands. We must invest in the tourist industry to allow the remainder of the economy and society to improve. Tourism should have five sectors:
1. History/Culture: The Government historic sites should be renovated and marketed by a private sector/Gov't joint venture group(s). Private historic properties need to be renovated with the assistance of tax incentives and subsidized financing. A historic redevelopment revolving fund should be created to renovate house by house by house. The downtown areas need to be re-paved in brick and cobble stone, utility lines buried and historic lighting installed. Specific sights i.e. forts, churches, and government offices, should be marketed as historic tour items to generate revenue.
2. Marine: Water activities and facilities need to be developed and promoted. Dive sights created, moorings operated efficiently, marinas renovated and built, sewage facilities made functional, water taxis promoted, etc.
3. Beautification: Anti-Litter laws enforced, garbage bins placed and operated efficiently, trees and plants planted, painting of private and public facilities in Caribbean colors encouraged, roadsides kept clean etc.
4. Shopping: Encourage a diversity of retail businesses to locate in the VI, provide tax incentives to insure low prices, discourage landlord gouging, and promote excellent service
5. Attractions/Activities. Encourage development of "things to do" beyond the beaches and shopping, such as the historic items, the Coral World type attractions, Carifest, Atlantis, etc.
Tourism Policy and initiatives should be evaluated within the context of those five areas. Marketing of our product should cater to overnight guests from the US, Europe and South America. Advertising dollars need to be spent on advertising, not special projects. Tourism development should encourage quality rather than quantity. St. Thomas needs to enhance its tourism product more so than enlarge it. St. Croix needs to grow it as well as enhance it. St. John needs to preserve its beauty.
Immediate Programs:
1. Governor and Lieutenant Governor reduce salaries by 10%
2. Senators reduce salary by 10%
3. Paid holidays reduced by 10. If they are so important, celebrate them on weekends
4. Terminate 15% of the government workforce over the next 12 months, to achieve approximately $70 million savings annually. Unclassified political employees should be the first to be terminated; yet, lay-offs can not be merely across the board. Individual talent needs to be considered and specific duties evaluated. The government needs to retain talent. Before termination, they can be retrained for the private sector. During the training program, they will be paid so long as they dedicate themselves to the training, if not they will be terminated immediately without further transition time. Such a program would upgrade the work force talent pool as well as provide an orderly transition process. Some may opt to relocate to other islands, the US mainland or elsewhere. If properly carried out this will not be a step-backwards for employees, but rather a step forward.
5. Remaining government employees must also be retrained in proper work skills.
6. The remaining work force would be placed on current fiscal year salary levels and frozen for four years.
7. The Federal Government should be approached to fund the retraining program. Alternative financing options can be developed.
8. Renegotiate the retroactive-pay packages. In exchange for a current salary and job one would get 75% of the amount owed over a three-year period.
9. Our government retirement system is one of the best in the country; we cannot afford it. The system has to be restructured. Many solutions are available to be instituted over time. Early retirement programs are going to devastate the system. We are living longer not shorter. The trend is toward later retirement, not earlier. Benefits and contributions have to be cut. Alternative: defined-contribution systems should be made available instead of the present defined-benefit system.
10. The whole tax system has to be restructured and the IRB overhauled. Taxation needs to be simplified and—most important—enforced.
11. Eliminate the excise tax and customs duties. Both taxes net very little money, approsimately $20 million annually, relative to the cost of collection. The reduced cost to businesses will increase profit and help stimulate the private sector allowing them to hire more people, and increase profits that will show up in increased income taxes. The elimination of excise and customs taxes would also make us more competitive relative to our global competition. All residents will benefit from the reduced cost. The reduced cost will not just be the tax itself but the cost associated with paying and tracking the taxes on both sides, private sector and government. Income tax revenue will be positively impacted by such a move, thus mitigating the revenue loss. By reducing the above taxes, we will lower the cost of goods, thus reducing the incentive for people to buy off-island. With more purchases made on island, government revenue will increase.
12. Increase the gasoline tax from 14 cents to 50 cents per gallon collected at the source, Hess, Texaco, Esso. This will be easy to collect, provide instant cash flow and be passed along to residents in small increments and everyone, from drug dealers to taxis to business owners, will pay. In addition, this will encourage car pooling and other transportation efficiencies. Presently 42 million gallons are sold annually plus an additional 50 million gallons in diesel. Taxing all gas sales and 25% of the diesel sales (non-marine sales) would generate approximately $20 million.
13. The gross receipts tax should be reduced from 4% to 2.5%. This will reduce collections by $32 million. (Macro economic effect of excise tax redu
ction, gross receipts reduction and cash infusion of vendor payments, tax refunds and wages will stimulate economy and thus tax receipts)
14. Impose import tax of 2.l5% on items brought into the islands (by mail, boat, and plane) by non-businesses to level the playing field for business relative to the gross receipt tax. The government would then be collecting a 2.5% tax on all sales transactions in the territory.
15. Impose a communication access tax on cable, phone, internet and satellite lines
16. Institute the cruise ship $2.50 head tax and direct the revenue to the tourism advertising fund. Cruise ships should also be enticed into investing in the infrastructure of the islands.
17. Renegotiate vendor payments. In exchange for payment within the next 120 days, amounts would be reduced 20%.
18. Given the implementation of the above, FEMA should then be requested to waive our debt.
19. A capital infusion will be needed to stimulate the economy. Financing can be obtained to meet the vendor and retro-pay obligations and tax refunds if the above cost savings are implemented. Once you pay these obligations, the infusion of cash will be a great economic stimulus to further multiply the recovery effort. The infusion should be over three years.
20. Streamline government operations and privatize services such as the dumps, garbage collection, the prisons, printing, parking, transportation, healthcare, utilities, collections, roads, social services etc.
21. Establish open, above board bidding process to obtain vendors. Preferential status should be given unionized bidders and those companies offering ownership to employees. This will create long-term economic opportunity for Virgin Islanders. Such would be one of the means by which government can reduce payroll cost.
22. Use frequent flier miles to pay for government travel.
23. Maximize the use of government properties for operations, thereby reducing rent expense.
Initiatives to stimulate the economy:
1. Education, Education, Education. Raise standards do not lower them, improve administration system.
2. Restructure IDC benefits to encourage new business. Require IDC beneficiaries to buy local and to invest locally. Enforce agreements. Limit right to transfer benefits.
3. Establish Homeporting in St. Croix
4. Finalize a BVI water usage agreement
5. Develop an aquafarming industry
6. Develop a historic renovation program, renovate our three principal towns
7. Create an independent tourism company
8. Develop marine assets
9. Create a retirement industry with a first rate healthcare system and tax incentives to encourage retirees to move to the VI.
10. Develop a communications hub and increase competition in telecommunication industry
11. Renovate our waterfronts to enhance the beauty and attractiveness of our islands
12. Expand the airline industry
13. Transform the Port Authority into an economic development entity
14. Encourage the development of the financial service industry
Public Relations Campaign:
1. Promote the private sector; encourage people to open businesses and to become business owners, not just employees.
2. Promote-Pride in the islands
3. Promote-Smile, it does not hurt
4. Promote-Hire local
5. Promote-Plant a tree
In Summary:
Borrowing more money without eliminating the operating and structural deficit is not solving the problem. It is merely making the problem bigger. Expenses have to be cut and a new perspective of the private sector is needed to improve the quality of our lives. Yes, the private sector has to meet the challenge and improve benefits to employees but, more so, we have to encourage Virgin Islanders to become entrepreneurs and owners of business. Maintaining the image that government is the almighty solution to all problems as well as the key to prosperity, is wrong, antiquated and contrary to reality.
There are many more good programs to be implemented and many of the above items can be modified, yet a plan needs to be implemented yesterday. If the above is implemented, the operating deficit will be eliminated in one year and the accumulated deficit in eight years.
More importantly, prospects for a brighter future will replace the present path of destruction we are on.
While the VI burns, the US is experiencing unprecedented economic prosperity. If we do not solve our problems now, economic prosperity for these islands will be a thing of the past. We are in crisis; we must act now.
Editors' note: Michael Bornn is an investment advisor and a principal of Seslia Securities, an investment brokerage with offices in the Virgin Islands and Philadelphia.
